(Reuters) -Oil prices fell for a third day on Wednesday amid increasing hopes of a ceasefire agreement in the Middle East and rising crude inventories and production in the U.S., the world's biggest oil consumer.

Brent crude futures for July fell 70 cents, or 0.8%, to $85.63 a barrel by 0456 GMT. U.S. West Texas Intermediate crude for June declined 75 cents, or 0.9%, to $81.18 per barrel.

Expectations that a ceasefire agreement between Israel and Hamas could be in sight, following a renewed push led by Egypt to revive stalled negotiations between the two, pushed oil prices lower.

"The potential for a ceasefire agreement between Israel and Hamas has eased concerns of an escalation of the conflict and any possible disruptions to supply," ANZ analysts said in a note on Wednesday.

However, Israeli Prime Minister Benjamin Netanyahu vowed on Tuesday to go ahead with a long-promised assault on the southern Gaza city of Rafah, whatever the response by Hamas to the latest proposals for a halt to the fighting and a return of Israeli hostages.

Also pressuring prices were swelling U.S. crude oil inventories and rising crude supply.

U.S. production rose to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January, its biggest monthly increase in about 3-1/2 years, the Energy Information Administration said on Tuesday.

"Continued signs of inflation also raised concerns about demand for crude oil. This comes ahead of the U.S. driving season, where demand for gasoline rises strongly," analysts at ANZ said.

Keeping oil from slipping further, output by the Organization of the Petroleum Exporting Countries (OPEC) was seen falling by 100,000 bpd in April to 26.49 million bpd, a Reuters survey found on Tuesday.

The survey reflected lower exports from Iran, Iraq and Nigeria against a backdrop of ongoing voluntary supply cuts by some members agreed with the wider OPEC+ alliance.